Suppose that a worker in Country A can make either 10 iPhones or 5 iPads each year. Country A has 100 workers. Suppose a worker in Country B can make either 2 iPhones or 10 iPads each year. Country B has 200 workers. A bundle of goods that Country A could potentially make would be:
A) (1,000 iPhones, 500 iPads).
B) (500 iPhones, 500 iPads).
C) (500 iPhones, 250 iPads).
D) (750 iPhones, 150 iPads).

Question

Quizplus · Accepted Answer

Since Country A has a comparative advantage in making iPhones, they should focus on making iPhones and trade with Country B for iPads. By using all 100 workers to make iPhones, they can produce 1000 iPhones. Alternatively, they could use all 100 workers to make iPads, producing only 500 iPads. Therefore, the best bundle of goods that Country A could potentially make is (1000 iPhones, 0 iPads). However, since they want a mix of iPhones and iPads, they could split their workforce to make 500 iPhones and 250 iPads, which gives them a total of 750 products. This makes choice C the best option.

Suppose That a Worker in Country a Can Make Either